The federal government is set to challenge a stay order issued by the Islamabad High Court (IHC) against a 15 percent additional income tax on bank lending, taking the matter to the Supreme Court of Pakistan. The Federal Board of Revenue (FBR) is preparing a Civil Petition for Leave to Appeal (CPLA) in an effort to meet a critical tax recovery deadline in November, as reported by the Express Tribune.

The stay order has complicated the government’s efforts to address a significant Rs. 190 billion shortfall in tax revenue during the first four months of the fiscal year. The disputed tax aims to discourage banks from over-investing in government debt rather than lending to private industries. Currently, banks face a normal tax rate of 39 percent, but those with an advances-to-deposit ratio (ADR) below 40 percent are subject to a 55 percent tax rate on government debt investments.

It has been determined that banks would need to pay Rs. 197 billion for excessive lending to the federal government. However, the actual tax collection may fall short as banks impose withdrawal fees on large deposits to reduce their tax liabilities ahead of the December 31 deadline.

The case is scheduled for a hearing on December 3, and the government has secured legal representation to argue its position. The additional tax was reinstated in January 2024 after being suspended in 2023 due to pressure from banks. The government is prioritizing the resolution of legal challenges surrounding this tax, alongside pending super tax cases involving Rs. 150 billion..